NOVAGOLD RESOURCES INC. (TSX:NG)(NYSE MKT:NG) announced results for
its second quarter ended May 31, 2013 and updated the status of the
permitting process for its flagship Donlin Gold project in Alaska.
With approximately US$215 million in cash and cash equivalents at
the end of the second quarter, NOVAGOLD is financially strong with
more than sufficient cash to fulfill all of its current financial
obligations, fund advancement of the Donlin Gold project all the
way through the permitting process to a construction decision, as
well as support this year's exploration program and ongoing
activities at its Galore Creek project in British Columbia.
Details of the Company's financial results are described in the
Unaudited Interim Condensed Consolidated Financial Statements and
Management's Discussion and Analysis (MDA) which, together with
further details on each of the Company's projects, including
resource and reserve estimates, will be available on the Company's
website at www.novagold.com, on SEDAR at www.sedar.com, and on
EDGAR at www.sec.gov. All amounts are in Canadian dollars unless
otherwise stated and all resource and reserve estimates are shown
on a 100% project basis.
During the Second Quarter in 2013, NOVAGOLD:
-- Completed the Donlin Gold Public Scoping component of the NEPA process
with positive and constructive reviews in all public meetings
-- Submitted comprehensive Donlin Gold environmental and social baseline
data to the US Army Corps of Engineers (the Corps), the lead permitting
agency, to enable preparation of the Environmental Impact Statement
(EIS)
-- Met with the Corps and cooperating permitting agencies in Alaska to
review essential Donlin Gold data which will facilitate the NEPA process
-- Continued to update Galore Creek's resource model and launched the 2013
exploration program
-- Reduced convertible debt by US$72.8 million; the remaining balance of
US$22.2 million is due May 1, 2015
President's Message
Notwithstanding the share price and the continued market
conditions challenging mining equities, we find ourselves in a
better position as a company than we had hoped. In less than two
years' time and ahead of the recent market decline, we completed
the Company's reorganization and the divestiture of non-core
assets; streamlined expenses, reduced the debt and further
strengthened the balance sheet; built a management with expertise
in developing and operating large-scale projects; de-risked Donlin
Gold and Galore Creek; as well as progressed our permitting and
exploration activities as planned. With these actions, we have
effectively positioned the Company to benefit tremendously from
what we anticipate will be a very bullish environment for gold in
the coming years.
NOVAGOLD is one of very few mine developers with assets located
in two of the safest geo-political jurisdictions in the world. As
investors who are looking for exposure to gold become more focused
on jurisdictional safety and stability, we expect NOVAGOLD to be
recognized as the investment of choice among institutions seeking
"premium valuation" with projects characterized by size, superior
grades and jurisdictional safety. Donlin Gold, with approximately
34 million ounces of gold in Proven and Probable reserve categories
and, by today's standards, with exceptionally high-grade for a
large-scale bulk mining operation of 2.1 grams per tonne, is one of
the world's most valuable undeveloped open-pit gold deposits. Once
in operation, it is expected to produce approximately 1,500,000
ounces of gold per year in the first five full years of production.
Assuming no future expansions, it is expected to average well over
1,000,000 ounces per year over its present 27-year life, making it
one of only six gold mines in the world that produce or which have
the potential to produce in excess of one million gold ounces per
year. With a mine life already measured in decades, Donlin Gold's
exploration potential beyond the known three-kilometer portion of
an eight-kilometer ore-bearing strike length has the potential to
extend the mine life significantly. Assets like Donlin Gold are
rare.
In the second quarter, NOVAGOLD progressed as planned with all
of its permitting activities at the Donlin Gold project and
launched the 2013 exploration program at the Galore Creek project.
After Donlin Gold's completion of the public scoping period last
March, which consisted of important meetings held in 13 villages
and Anchorage, the Corps commenced work on the Preliminary Draft
Environmental Impact Statement (PDEIS). In keeping with its
commitment to best practices, Donlin Gold held a number of meetings
with the Corps and cooperating agencies to provide an overview of
the core components of the extensive environmental and social
baseline data submitted to the Corps and the alternative project
designs considered in preparing the proposed project. These
meetings establish strong working relationships with the agencies
to ensure that the EIS and permitting processes will be
successfully completed on schedule. Donlin Gold also enjoys the
strong support of the Calista Corporation and The Kuskokwim
Corporation, the two Alaska Native Corporations that are the
project's principal stakeholders, and its surrounding communities,
all a testament to the excellent work and extensive community
outreach that have been conducted since the project's inception.
Permitting, which commenced one year ago, is expected to take 2 to
3 more years to complete. Our timeline is more conservative than
the Corps' permitting timeline and we are currently on schedule.
Having completed several projects in the United States similar in
size and scale to Donlin Gold, I am encouraged by the progress to
date on permitting and believe that we will make headway on
enhancing the project's return.
In the second quarter, we commenced the 2013 exploration season
at Galore Creek, a 10,000-meter drill program to define the extent
of the new Legacy mineralization, a 700-meter long zone adjacent to
the Central pit, and assess its impact on future mine design.
During the quarter, we also continued work on updating the resource
model with the 2012 drill results and remain on track to update
Galore Creek's resources in the third quarter and further improve
the overall economics of this project. If developed as envisioned
in the pre-feasibility study, Galore Creek is expected to become
the largest and lowest-cost copper mine in Canada. This factor is
particularly important considering the critical challenges copper
miners face today in jurisdictions such as the Democratic Republic
of Congo, Indonesia, Argentina, Mongolia, Chile and Peru. Setting
aside ongoing activities at Galore Creek and the tremendous value
this asset offers, at this time, we will continue to pursue
opportunities to sell our 50% interest in the project following our
strategy to become a pure gold company focused on Donlin Gold.
NOVAGOLD reduced its debt by approximately US$73 million in the
second quarter and maintains a strong balance sheet with
approximately US$215 million in cash and cash equivalents at May
31, 2013. The Company has US$22 million in debt of the principal
amount remaining that is due in May 2015. We believe that our cash
balance is more than sufficient to fulfill all of the Company's
current financial obligations including funding the advancement of
the Donlin Gold project through the permitting process and support
ongoing activities at its Galore Creek project.
Over the last few months, there has been a lot of discussion
about the current 'downturn' in the price of gold. As management of
a company which is developing an asset whose life is expected to be
measured in decades and potential value in billions of dollars, we
view the current phenomenon as a short-term swing in a
well-established multi-decade secular bull market in gold. Great
mines easily absorb these swings during their long lives of
operation. They also benefit from price upswings, which places
Donlin Gold, with its projected life-of-mine average cash cost of
less than $600 per ounce, in the unique category of assets
positioned to deliver substantial value to all of its stakeholders
for many years to come. We view Donlin Gold through the prism of
such generational value-building family of mines as Goldstrike and
Cortez in Nevada and Hemlo in Ontario. For those of us who have had
the privilege of either building or operating these great mines,
all located in safe geo-political jurisdictions, the notion of
delivering significant shareholder value by developing a long-life
world-class mine such as Donlin Gold is real and achievable.
In conclusion, I want to extend our most sincere appreciation to
our shareholders for their patience and incredible support. I would
also like to thank our stakeholders for their partnership and
trust, our Board of Directors for its guidance and its
shareholder-friendly and value-focused vision; our project teams
for their continued hard work, dedication and expertise in the
excellent management of our quality assets; the communities and
governments where we operate, who give us the foundation of support
without which we could not develop our projects; and finally, our
employees for their dedication and hard work in achieving our
objectives to maximizing the value of our assets for the benefit of
our stakeholders.
Results of Operations
in thousands of Canadian dollars, except for per share amounts
----------------------------------------------------------------------------
Three Three
months months Six months Six months
ended ended ended ended
May 31, May 31, May 31, May 31,
2013 2012 2013 2012
$ $ $ $
----------------------------------------------------------------------------
Expenses (1) 3,951 6,884 7,425 12,750
----------------------------------------------------------------------------
Share-based payments 1,520 2,469 7,046 12,557
----------------------------------------------------------------------------
Finance costs, net 3,155 3,273 7,066 6,449
----------------------------------------------------------------------------
Foreign exchange (gain) loss (973) (17,199) (8,856) (18,610)
----------------------------------------------------------------------------
Operating loss 10,853 6,321 17,429 33,709
----------------------------------------------------------------------------
Debt settlement and derivative
fair value movement (3,740) (17,421) (2,900) (45,199)
----------------------------------------------------------------------------
Gain on derivative - (13,696) 2,455 (32,239)
----------------------------------------------------------------------------
Gain on spin-out of NovaCopper
to shareholders - (71,641) - (71,641)
----------------------------------------------------------------------------
Income (loss) for the period (10,268) 94,238 (24,050) 111,007
----------------------------------------------------------------------------
Income (loss) per share
----------------------------------------------------------------------------
- Basic (0.03) 0.34 (0.08) 0.42
----------------------------------------------------------------------------
- Diluted (0.03) 0.26 (0.08) 0.26
----------------------------------------------------------------------------
(1) General and administrative, salaries and severance, professional fees,
and corporate and development expenses.
Financial Results
For the three and six months ended May 31, 2013, the Company
reported a net loss of $10.3 million ($0.03 basic and diluted loss
per share) and $24.1 million ($0.08 basic and diluted loss per
share), compared to net income of $94.2 million ($0.34 basic and
$0.26 diluted income per share) and $111.0 million ($0.42 basic and
$0.26 diluted income per share), for the prior year periods. The
Company recorded a non-cash gain of $3.7 million and $0.4 million
in the three and six months ended May 31, 2013 on debt settlement
and derivative fair value movement related to U.S. dollar
denominated convertible notes and common share warrants compared to
significant non-cash gains in the respective periods in 2012 of
$102.8 million and $149.1 million due to a reduction in embedded
derivative and derivative liabilities related to U.S. dollar
denominated convertible notes and common share warrants and a gain
on the spin-out of NovaCopper Inc. to shareholders. The fair value
of the embedded derivative and derivative liabilities vary with
changes in the Company's share price and changes in the U.S. dollar
exchange rate.
NOVAGOLD's operating losses were $10.9 million and $17.4 million
for the three and six months ended May 31, 2013 compared to $6.3
million and $33.7 million in the respective periods in 2012. The
increase in operating loss in the second quarter is primarily due
to a lower foreign exchange gain, partially offset by significantly
lower expenses as a result of the corporate reorganization
completed in 2012. The decrease in operating loss for the first six
months of 2013 is due to significantly lower expenses as a result
of the corporate reorganization completed in 2012. Project
maintenance, mineral property and decommissioning expenses were
eliminated in 2013 compared to expenses of $5.3 million and $10.4
million in the three and six months ended May 31, 2012 as a result
of the spin-out of NovaCopper Inc. and the Ambler project, as well
as the sale of the Rock Creek project. The Company's combined share
of project expenses at Donlin Gold and Galore Creek decreased to
$6.4 million and $11.8 million in the three and six months ended
May 31, 2013 from $9.0 million and $16.7 million in the respective
periods in 2012. Foreign exchange gains were $16.2 million lower in
the second quarter and $9.8 million lower in the first six months
of 2013 compared to the same periods in 2012, as the value of the
Company's U.S. dollar holdings increased significantly on a
Canadian dollar basis in the prior year periods. Net financing
costs increased $0.6 million in the first six months of 2013 due to
lower accretion on notes receivable.
Liquidity and Capital Resource
Cash and cash equivalents was $222.9 million (US$215 million) at
May 31, 2013, a decrease of $30.1 million from $253.0 million at
November 30, 2012. The decrease in cash during the first six months
of 2013 was due to the repurchase of $73.4 million (US$72.8
million) of the Company's convertible notes and $22.1 million used
in operating activities, partially offset by the receipt of $54.0
million (US$54.4 million) in net proceeds from the exercise of all
outstanding warrants and foreign exchange gains of $11.4 million
resulting from the strengthening of the U.S. dollar. The Company
has $23.0 million (US$22.2 million) principal amount remaining of
its convertible notes due in May 2015. NOVAGOLD believes it has
sufficient resources to fund the advancement of its flagship Donlin
Gold project through the permitting process, support ongoing
activities at its Galore Creek project and repay the remaining
convertible notes.
Cash used in operating activities was $22.1 million in the first
six months of 2013, a decrease of $5.2 million from the $27.3
million used in the first six months of 2012. The decrease resulted
from the successful reorganization of the Company in 2012
encompassing the spin-out of NovaCopper Inc., the sale of Alaska
Gold Corporation, which included Rock Creek, as well as a reduction
in corporate overhead and administrative costs. The Company used
$9.0 million to fund its share of expenditures at the Donlin Gold
and Galore Creek projects in the first six months of 2013, compared
to $14.9 million in the first six months of 2012.
Outlook
NOVAGOLD remains on target with the previously stated 2013
budget. Our share of project funding is expected to be $15.0
million for Donlin Gold and $8.0 million for Galore Creek, and we
expect to spend approximately $15.0 million for administration and
$3.2 million in interest on the convertible notes.
Donlin Gold will continue with permitting, engineering,
environmental and community development activities throughout the
balance of the year and anticipates that the Corps will draft the
PDEIS, receive comments from the Federal and State agencies on the
PDEIS in preparation for issuance of the draft EIS in 2014. In
addition, Donlin Gold LLC continues to optimize the project and
evaluate third-party owner-operator agreements to reduce the
up-front project capital costs. Sharing up-front costs with
third-party operators and further optimizing the project design and
layout are avenues that can significantly reduce initial capital
costs. As the anticipated operating margins of the project are
already robust, this emphasis could potentially have a significant
impact on project returns.
At the Galore Creek project, GCMC continues work in updating the
resource model with the 2012 drill results and expects to update
resources in the third quarter; and follow-up on positive drill
results and test additional targets with approximately 10,000
meters of planned drilling which commenced in May. NOVAGOLD
continues to evaluate opportunities to monetize the value of Galore
Creek.
Conference Call & Webcast Details
The conference call and webcast, to discuss these results, will
take place July 11, 2013 at 8:00 am PDT (11:00 am EDT). The webcast
and conference call-in details are provided below.
Webcast: www.novagold.com
North American callers: 1-866-730-5771
International callers: 1-857-350-1595
Participant Passcode: 36065060
The webcast will be archived on NOVAGOLD's website for one year
and the conference call replay will be available for 14 days. To
access the conference call replay please dial 1-888-286-8010 (North
America), or 1-617-801-6888 (International), followed by your
Access PIN: 32163508. For a transcript of the call please email
info@novagold.com.
About NOVAGOLD
NOVAGOLD is a well-financed precious metals company engaged in
the exploration and development of mineral properties in North
America. Its flagship asset is the 50%-owned Donlin Gold project in
Alaska, one of the safest jurisdictions in the world. With a total
of approximately 34 million ounces of gold in the Proven and
Probable reserve categories (505 million tonnes at an average grade
of approximately 2.1 grams per tonne), Donlin Gold is regarded to
be one of the largest, and most prospective known gold deposits in
the world. According to the updated Feasibility Study (as defined
below), once in production, Donlin Gold should average
approximately 1.5 million ounces of gold per year for the first
five years, followed by decades of more than one million ounces of
gold per year on a 100% basis. The Donlin Gold project has
substantial exploration potential beyond the designed footprint
which currently covers only three kilometers of an approximately
eight-kilometer strike length of the property. Permitting is
underway for the Donlin Gold project, a clearly defined process
expected to take approximately 3 years. NOVAGOLD also owns 50% of
the Galore Creek copper-gold-silver project located in northern
British Columbia. According to the 2011 Pre-Feasibility Study,
Galore Creek is expected to be the largest copper mine in Canada, a
tier-one jurisdiction, when it is put into production. NOVAGOLD is
currently evaluating opportunities to sell all or a portion of its
interest in Galore Creek and would apply the proceeds toward the
development of Donlin Gold. NOVAGOLD has a strong track record of
forging collaborative partnerships, both with local communities and
with major mining companies.
Scientific and Technical Information
Scientific and technical information contained herein with
respect to Donlin Gold is derived from the "Donlin Creek Gold
Project Alaska, USA NI 43-101 Technical Report on Second Updated
Feasibility Study" dated November 18, 2011 compiled by AMEC (the
"Feasibility Study"). Kirk Hanson, P.E., Technical Director, Open
Pit Mining, North America, (AMEC, Reno), Gordon Seibel, R.M. SME,
Principal Geologist, (AMEC, Reno), Tony Lipiec, P.Eng. Manager
Process Engineering (AMEC, Vancouver) are the Qualified Persons
responsible for the preparation of the Feasibility Study, each of
whom are independent "qualified persons" as defined by NI
43-101.
Cautionary Note Regarding Forward-Looking Statements
This press release includes certain "forward-looking
information" and "forward-looking statements" (collectively
"forward-looking statements") within the meaning of applicable
securities legislation, including the United States Private
Securities Litigation Reform Act of 1995. All statements, other
than statements of historical fact, included herein including,
without limitation, the timing of permitting and potential
development of the Project, statements relating to NOVAGOLD's
future operating and financial performance, outlook, and the
potential sale of all or part of NOVAGOLD's interest in Galore
Creek are forward-looking statements. Forward-looking statements
are frequently, but not always, identified by words such as
"expects", "anticipates", "believes", "intends", "estimates",
"potential", "possible", and similar expressions, or statements
that events, conditions, or results "will", "may", "could", or
"should" occur or be achieved. These forward-looking statements may
include statements regarding perceived merit of properties;
exploration results and budgets; mineral reserves and resource
estimates; work programs; capital expenditures; timelines;
strategic plans; completion of transactions; market prices for
precious and base metals; intended use of proceeds; or other
statements that are not statements of fact. Forward-looking
statements involve various risks and uncertainties. There can be no
assurance that such statements will prove to be accurate, and
actual results and future events could differ materially from those
anticipated in such statements.
Important factors that could cause actual results to differ
materially from NOVAGOLD's expectations include the uncertainties
involving the need for additional financing to explore and develop
properties and availability of financing in the debt and capital
markets; uncertainties involved in the interpretation of drilling
results and geological tests and the estimation of reserves and
resources; the need for continued cooperation with Barrick Gold
Corporation and Teck Resources Limited for the continued
exploration and development of the Donlin Gold and Galore Creek
properties; the need for cooperation of government agencies and
native groups in the development and operation of properties; the
need to obtain permits and governmental approvals; risks of
construction and mining projects such as accidents, equipment
breakdowns, bad weather, non-compliance with environmental and
permit requirements, unanticipated variation in geological
structures, ore grades or recovery rates; unexpected cost
increases, which could include significant increases in estimated
capital and operating costs; fluctuations in metal prices and
currency exchange rates; and other risk and uncertainties disclosed
in NOVAGOLD's Annual Information Form for the year-ended November
30, 2011, filed with the Canadian securities regulatory
authorities, and NOVAGOLD's annual report on Form 40-F filed with
the United States Securities and Exchange Commission and in other
NOVAGOLD reports and documents filed with applicable securities
regulatory authorities from time to time. NOVAGOLD's
forward-looking statements reflect the beliefs, opinions and
projections on the date the statements are made. NOVAGOLD assumes
no obligation to update the forward-looking statements of beliefs,
opinions, projections, or other factors, should they change, except
as required by law.
Contacts: NOVAGOLD Melanie Hennessey Vice President, Corporate
Communications 604-669-6227 or 1-866-669-6227 NOVAGOLD Erin O'Toole
Analyst, Investor Relations 604-669-6227 or 1-866-669-6227
www.novagold.com
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